The Research Of Shanghai Interbank Offered Rate (SHIBOR) As The Benchmark Interest Rate

In the modern economy, finance is the core of it. As the price of a financial resource, interest rates play important roles in the market allocation. The development of market economy requires Interest Rate Liberalization which is essential. As compared with the planned economy period, interest rate controls have been greatly relaxed at present and the frequency of interest rate adjustments has been greatly improved; In addition to deposit and loan interest rates, others in variety of markets have reached market-oriented form. However, risk-based pricing of financial products is difficult to carry out and risk management mechanism can not be truly implemented due to the lack of benchmark. The reform of Interest Rate Liberalization has entered a crucial stage, when SHIBOR is introduced as a benchmark interest rate.The main purpose of this paper was to explore the feasibility of SHIBOR as the benchmark. Combining the characteristics of the benchmark rate and borrowing the successful experience from foreign countries, the writer analyzed the problem of SHIBOR and proposed reasonable recommendations for improvements, using the approaches of qualitative and quantitative analysis. In this paper, the structure is divided into five parts:The first part is the article introduction. To achieve our Interest Rate Liberalization, it is necessary to determine a benchmark interest rate. This paper presented SHIBOR as a benchmark interest rate, which is established to promote the reform. SHIBOR, as the benchmark, is very important as follows:to promote the management mechanism in commercial banks; to promote the transmission mechanism of monetary policy from quantity to price-based industries; to guide non-financial enterprises and households'expenditures; to reduce macroeconomic instability.Chapter 1 studies the characteristics of the benchmark rate. This chapter 'begins from two concepts which are the central bank benchmark and the market benchmark. Then the writer summed up five characteristics of it as the important criterion for testing SHIBOR and further used the icon showing the conduction effects of it. At last, borrowing from the Western experience of making the benchmark rate options, the writer summed up 6 general principles and exemplified several international benchmark rates, such as Euro area, United States and Japan.The third part is the body of the Chapter 2, which mainly discusses interbank interest rate as the benchmark. Interbank interest rate is the price of capital and the core rate in interbank money market, which is also a representative rate in entire financial market. There are many successful examples of the benchmark rates, which also the interbank interest rates, such as London Interbank Offered Rate (LIBOR), Federal Funds Rate (FFR), Singapore Interbank Offered Rate (SIBOR) and Hong Kong Interbank Offered Rate (HIBOR), etc. They have their own formation mechanism, which can be learned for SHIBOR as they have many common points. The advantages they have make interbank interest rate possible to be the benchmark. Those were stated in Chapter 2.The fourth part is the body of Chapter 3, the core part of the full-text. This chapter is in-depth analysis of SHIBOR with the theoretical and metrical methods. SHIBOR is Shanghai Interbank Offered Rate for short and its existing pricing mechanism is very close to LIBOR. In 1996, China Interbank Offered Rate, called CHIBOR, which was apparently similar to SHIBOR, was well-known for a short time. They are very different in credit pricing and formation mechanism, especially in the drive of central bank, so they can't be generalized. In addition, it is summarized the operation of SHIBOR to the first half of 2008. In order to better test the effectiveness of SHIBOR, we would divided it into two kinds, short-term (1 month or less varieties) and long-term (3 months to 1 year varieties). And then we found that:the short-term SHIBOR has reached the requirements as a benchmark interest rate, while the long-term SHIBOR hasn't.Last part of the article is Chapter 4, which is the summary and prospect of the whole paper. This chapter has been divided into two parts:Analyzing issues and making policy suggestions, which were put forward to perfecting SHIBOR as an eligible benchmark interest rate.